What’s Smashing the Loonie?
Dave Green • 1 min read
The Canadian dollar is in huge trouble due to speculated changes in the fundamentals around the globe. The USD/CAD has plunged more than 150 pips this week. The Loonie failed to gain support despite positive outcomes from economic events. Even the surplus trade balance failed to extend any support to the commodity currency.
Correlated Instruments- Canadian Dollar & Crude Oil
Canada has one of the largest oil reserves and their economy primarily depends upon the export of crude oil. However, 75% of their exports go to the United States. As a result, the prices of crude oil heavily impacts the demand and supply of the Canadian dollar. The increase in oil prices results in more demand for the Canadian dollar as U.S companies will have to purchase more Canadian dollars to pay for expensive crude oil.
At the start of this week, crude oil traded at $50.20 but the prices have dropped more than 480 pips due to the abundant crude oil supplies. For this reason, we see a sharp bullish trend in the USD/CAD.
In addition to the fundamental analysis, the technical side also suggests a bullish tone in the pair. Although the USD/CAD has made its way to the overbought territory in the RSI (above 70), I can see more room for buying in the pair. The trend indicator, 20 & 50 periods EMA, is also in favor of buyers. In the upcoming days, the pair may find some support at $1.1325, whereas it's more likely to target the $1.13500 level.
For now, investors should focus on the U.S NFP & the unemployment rate numbers that are due to release at 13:30 (GMT).